India Gains Importance as an Economic and Political Epicenter

China’s rapid economic and military expansion is certainly a blip on everybody’s radar. It has a lot of investors excited, but it also has a lot of China’s neighbors worried. That’s why countries like Taiwan and Japan are making a point to further their involvement with India, another future world power.

In a report issued Sept. 9, Taiwan’s Council for Economic Planning and Development (CEPD) established new goals for economic relations with India. According to the China Post, Taiwan is planning to boost its cooperation in India in the fields of construction, finance, and transportation, making it one of Taiwan’s top ten trade partners by the year 2015.

The report outlined a number of advantages and disadvantages with respect to investment in India. The country has a growing middle class of 300 million consumers and a well-developed software industry. However, it lacks modern infrastructure and an efficient government. It also has high production costs that discourage foreign investment.

Still, Taiwan hopes to establish a higher level of communication, and increase its annual exports to the nation by 15% over the next three years. Currently India is ranked at No. 25 on Taiwan’s trade list, but Taiwanese officials are hoping India will have cracked the top 10 by 2015.

To that end, a series of seminars have been held over the past few weeks with the objective of accelerating the transition. According to the report, the next step will be for Taiwan to increase its technological and academic exchanges with India as well as bilateral cooperation in the sectors of construction, finance, transportation, and agro-technology. The report also outlined several strategies for inviting high-end Indian talent and corporations to establish their own footholds in Taiwan.

Japan is also pushing for broader exposure to the Indian market, which many of its experts feel is lacking. In a report presented to Prime Minister Shinzo Abe, the Japan Forum on International Relations urged the government to take further steps to promote free trade talks and private-sector exchanges with India.

The heightened sense of urgency stemmed from perceived gains by Western companies from outsourcing clerical and information technology operations to low-cost Indian firms. According to the Forum, “Unless Japanese companies do likewise, they risk remaining the only ones not leveraging India’s IT expertise, and could end up losing international competitiveness.”

The Forum also called for more foreign direct investment in India, estimating that only 5% of India’s FDI comes from Japan, while 8% comes from the U.K. and 12% from the United States.

Eisuke Sakakibara, the former Finance Ministry official who headed up the group, also pointed out that Japanese companies have failed to exploit the buying power of India’s burgeoning middle class.

“A giant market is developing and Japanese companies risk missing a huge opportunity,” he said.

Advantages Over China

In light of all the attention it has received, India is starting to show signs of confidence, and a desire to step outside of China’s shadow. John Elliot quotes several Indian sources in his Riding the Elephant Blog, which can be found on CNN.com.

Elliot quotes, M.V. Kotwal, a director of Larsen & Toubro (L&T), as saying that China “is a regulated economy which means suppression of independent thinking, and that limits entrepreneurial activity.” By contrast, in India “there is a lot of freedom of thought which means that talent is available, and people come out with solutions whenever they are given a chance.”

L&T is India’s largest and most international heavy engineering group. It has sold ten coal gasification plants totaling $350 million to China in the past three years.

Also, Anand Mahindra, managing director of Mahindra & Mahindra, made the point that Chinese machinery workers can beat deadlines, but they lack the flexibility to switch instantly to a different machine. “The Indian mind is not fazed by confusion and apparent disorder,” he said, “If there is a wrinkle on a dye, an Indian engineer will sort it, but a Chinese will want to fly in an expert.”

Party of Four

India’s strengths expand well beyond economic growth however. It is beginning to look more and more like the best chance for a democratic counterbalance to China as well. And that is another role it is eager to embrace.

During first week of September, India entertained the largest known collection of foreign navy vessels ever in the Bay of Bengal for joint military exercises. The largest representation was that of the United States which volunteered 13 ships including two aircraft carriers, a nuclear submarine, two guided missile cruisers, and six guided missile destroyers. In all, 30 warships and 200 aircraft from India, the U.S., Australia, Singapore, and Japan took part in the exercise.

Also this month, the respective leaders of Australia, the United States, and Japan held their first-ever joint strategic meeting in which they discussed India’s potential role in the region. At face value, it looks as though Australia, India, Japan and the U.S. are forging an informal defensive pact based on shared national interests and democratic values. An Indian commentator, Sudha Ramachandran, has called it a “quadrilateral axis of democracy” or “quad.”

This is the most concrete evidence of the multi-lateral construction of a counterweight to Chinese expansion we’ve seen so far. Meanwhile China is struggling to maintain its unprecedented levels of growth without losing control.

Trackbacks

[…] Money Morning has covered India’s growth potential in depth. But often neglected is its slowing pace of outsourcing growth and its rising costs — brought on by a bevy of factors that, collectively, could undermine a large portion of India’s GNP. […]

Silver is essential to a balanced portfolio – this safe-haven asset will hold its value against geopolitical conflict and market volatility. And silver has real potential to see double-digit gains this year. Find out why silver prices are set to surge, plus the four best ways to invest in silver now. Enter your email below to get the report.

Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.